Banking error in your favor: what to do when money that does not belong to you lands in your bank account?

Imagine waking up to find that your bank balance has a few more zeros at the end than the day before.

This is exactly what happened to Melbourne wife Thevamanogari Manivel in May last year who, according to documents from an ongoing case in the Supreme Court of Victoria, was the recipient of a mistaken transfer of the cryptocurrency trading platform, Crypto.com, worth $10,474,143.

Apparently, the error occurred when a platform employee attempted to transfer a $100 refund to Manivel, but instead entered an eight-digit account number in the payment field.

Unfortunately for Crypto.com, it did not discover the error for seven months, during which time Manivel allegedly used part of the funds to purchase a $1.35 million property.

The company has since taken the case to court, and in a recent judgment, Manivel was ordered to sell the property in order to repay Crypto.com some of the money still owed ($1.35 million) more interest and fees.

Another story, also from Victoria, is that of Dan Saunders. In short, in 2011 Saunders discovered a loophole with his bank that allowed him to top up his savings account with his credit account and then withdraw a seemingly endless stream of cash.

Over the course of five months, Saunders used the loophole to spend about $1.6 million of his bank’s money before turning to him. According to Saunders, he was sentenced to one year in prison, after which he was released on a community correction order.

Obviously, things haven’t worked out well for either of these recipients of bank errors, so in the rare – but not impossible – event of a mistransfer, what course of action should you take ?

Honesty is the best policy

Although the temptation to remain silent may be strong, the Australian Financial Complaints Authority (AFCA) recommends anyone who receives money that is not theirs to contact their bank as soon as they notice the error. .

After all, if this is a case where someone mistakenly transferred money to the wrong bank account, chances are the bank will freeze the money and then try to refund it. .

“If you want to do the right thing, and I’m sure most people would, you can alert the bank to the transaction – although you don’t have to,” says Suanne Russell, chief ombudsman. from the AFCA for small businesses.

“Depending on the amount, you may really not have noticed the transaction and spent the money. In that case, talk to your bank about what to do – especially if returning the money is causing difficulty financial.

“You shouldn’t spend the money, because the person who sent it by mistake will likely ask the bank to reverse the transaction and return the funds.”

But what about the interest you might earn on that money?

“Usually the money isn’t in an account long enough to earn interest,” says Russell. “However, technically any interest would not be yours.”

What if your employer overpays you?

A more likely scenario of a multinational transferring millions of dollars to you is that your own employer is wrong with your salary. In fact, Australian Payroll Association chief executive Tracy Angwin says overpayments are far more common than most people realize, and just as common as underpayments.

“You often hear about underpayments because people normally know what they should be paid. But when it’s an overpayment, especially if it’s not an overpayment – perceived important, employees trust that the payroll department knows what they are doing.

“Small overpayments will usually go unnoticed because the employee won’t recognize it, and neither will the employer. Large ones do get noticed, but it can take a while.”

So what should you do if your paycheck hits your bank account and seems bigger than it should? According to Angwin, it’s worth reporting as soon as possible, although employers should also be flexible about how the money is refunded.

“The employee, if they’re honest, will let the payroll office know. That would be the right thing to do, but they don’t have to return the money right away,” she says.

“If a company decides they want the money back, they need to contact the employee and let them know what the value of the overpayment is, and make a deal with them. funds can be just as expensive as the funds themselves.”

Tax implications

In the case of an overpayment, the headache can be bigger than just having to pay the money back. As director of tax communications at H&R Block, says Mark Chapman, any tax owed will depend on whether or not the company chooses to let the overpayment slide.

“If the amount is written off, the employer must pay employee benefits tax on the amount written off, but if the debt is not written off, the tax consequences fall on the person who received the refund,” says- he.

“If the individual is required to repay the amount in the same fiscal year, they must repay the full amount of the overpayment minus the PAYG tax already deducted. For example, if the employee received an overpayment of $1,000 and $200 of that amount was withheld in PAYG Tax, the employee must repay $800.

“However, if the overpayment is not recognized in the same year it was paid but rather a year later, the employee is liable to pay the full amount, including any tax withheld.”

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